In a groundbreaking move, the state of Washington took the lead in 2019 by implementing legislation for long-term care, marking a significant milestone in the healthcare landscape. The WA Cares Fund, signed into law that year, introduced a publicly funded insurance program that offers working residents of Washington the opportunity to secure a basic level of long-term care (LTC) benefits. The program is designed to be funded by Washington workers, who will contribute to it through payroll deductions, set to begin in July 2023.

As a high-income earner, you might be wondering how this program could impact your financial future, retirement, and the legacy you leave behind. This blog aims to provide insights into the implications of long-term care legislation in states like California and what steps you can take to secure your financial future.

The Washington Model

Looking at Washington as an example, the LTC program brought about several key changes for all wage earners in the state:

1. New Payroll Tax: Workers in Washington now face a new payroll tax of $0.58 per $100 of wages, with the potential for this rate to increase in the future.
2. Maximum Lifetime Benefits: The program offers a maximum lifetime long-term care benefit of only $36,500, which, for many, may fall short of the actual costs of long-term care.
3. Vesting Period: Individuals are required to vest into the program over a period of 10 years.
4. Residency Requirement: To be eligible for long-term care benefits, you must be a resident of Washington State.
5. No Earnings Cap: There’s no cap on the earnings that are subject to taxation.

California on the Horizon

Following in Washington’s footsteps, California is actively considering the implementation of its own mandatory Long-Term Care program in an effort to lower the number of people reliant on Medi-Cal. While California may provide a limited window for individuals to purchase private long-term care insurance to avoid the new LTC payroll tax, the program could potentially be in effect as soon as 2024.

However, it’s crucial to note that securing a private long-term care policy can take up to 8 weeks for underwriting and approval. To ensure you can opt-out with private insurance, high-income earners should act proactively. Opt-out provisions could be tied to the date of the legislation’s introduction or the day it’s signed into law.

Why You Should Consider Long-Term Care Insurance

Many of our clients are choosing to acquire long-term care insurance for several reasons:

1. Opt-Out Option: Taking proactive ownership of private long-term care insurance can safeguard you if California, or any other state, introduces an opt-out provision when implementing an LTC program.
2. Confidence: Having long-term care insurance in place provides the confidence of knowing that you and your loved ones will have financial protection if the need for long-term care arises.
3. Asset Protection: Long-term care insurance can help shield your savings and assets from being depleted by the high cost of long-term care.
4. Maintaining Independence: With long-term care insurance, you can receive the care you need in a place of your choice, maintaining your independence and reducing reliance on family or government support.
5. Relieving Loved Ones: It eases the financial and emotional burden on family members who might otherwise be responsible for providing or paying for your care.
6. Preserving Dignity: Long-term care insurance ensures you receive the care and support you need to maintain your dignity and quality of life as you age.

Be Proactive, Not Reactive

Like in Washington, other states may introduce a Long-Term Care Tax with little notice. Don’t wait to get protection. To avoid potential taxation and secure your financial future, consider owning a tax-qualified Long-Term Care Insurance policy following Section 7702(b) of the U.S. Code.

We recommend that companies and high-income earners evaluate a long-term care insurance plan. It’s time to take control of your future and protect your financial well-being. While we don’t offer long-term care insurance, our estate planning solutions safeguard your legacy, no matter what life throws your way!

We’re here to help you secure your family’s future and avoid those unexpected stressful situations. With our estate planning expertise, we ensure that you and your loved ones are protected, even in times of incapacity or with the power of attorney.